Companies are paying increasing attention to their extra-financial performance, especially since the introduction of the DPEF (for "Déclaration de Performance Extra-Financière") in 2019. Whereas in the past, financial performance took precedence, today it's no longer enough to convince investors and customers. Respect for the environment, human rights and good governance are now three elements that are studied in depth when financing or investing. What ESG criteria should be studied? And how useful are they? We take stock.
ESG criteria
ESG (for Environment, Social and Governance) is an acronym familiar to the international financial community. It designates the non-financial elements to be taken into account when analyzing an economic player (company, community, etc.) in the context of financing or investment.
For certain types of financing (such as impact credit), banks or investors use ESG criteria to measure a company's extra-financial performance. As the name implies, these are criteria used to assess the extent to which companies take sustainable development* into account.
There are many different criteria:
Reasons for integrating criteria
The inclusion of ESG criteria in financial transactions is a response to society's global awareness of sustainability issues, but not the only one. For companies, there are many reasons to integrate these criteria:
Risk management
Taking ESG criteria into account enables companies to identify and manage the environmental, social and governance risks to which they are exposed. Implementing a sustainable development policy will reduce reputational, financial and legal risks.
Business opportunities
A sustainable approach can open up new business opportunities, notably by accessing emerging markets linked to clean energy, energy efficiency, green technologies and environmentally-friendly products.
Innovation
ESG criteria can stimulate innovation by encouraging the development of products and services that are more environmentally friendly, socially responsible and in tune with changing consumer needs.
Reputation and brand enhancement
Companies adopting responsible ESG practices are often viewed more favorably by customers, investors and employees, which can strengthen their brand and reputation.
Attractiveness to talent
Companies committed to attractive ESG practices attract and retain the most qualified talent, as many employees seek out companies whose mission and values are aligned with their own. 74% of HR managers say that CSR is a crucial criterion when recruiting talent, according to a study conducted by Ipsos for Michael Page in 2021.
Cost reduction
Integrating sustainable practices can lead to more efficient use of resources, reduce waste, lower energy consumption and minimize the costs associated with regulatory compliance.
Supply chain management
By integrating ESG criteria into their supply chain, companies can reduce the risks associated with non-compliant suppliers, strengthen the resilience of their supply chain and improve collaboration with stakeholders.
Access to financing
More and more investors are incorporating ESG criteria into their investment decisions. Companies that perform well on ESG criteria can be better positioned to attract investors and obtain financing on advantageous terms. In this case, in 2016, the French Ministry of the Economy and Finance created the SRI label, a tool for choosing responsible and sustainable investments. One of its aims is to make socially responsible investment (SRI) products more visible to savers in France and Europe.
Compliance with regulations
Many jurisdictions are adopting stricter environmental and social regulations. Integrating ESG criteria can help companies comply with current regulations and anticipate future regulatory changes.
Long-term sustainability
By taking ESG criteria into account, companies can contribute to the long-term sustainability of ecosystems, communities and the global economy, creating value for all stakeholders.
For all these reasons, it is becoming necessary for banks and investors to equip themselves to monitor these ESG criteria. Finally, integrating ESG criteria is not only a moral necessity, but also a sound strategy for ensuring the long-term survival and prosperity of companies.
*Since the Rio Earth Summit, held under the aegis of the United Nations in 1992, the notion of sustainable development and its three pillars (economic/ecological/social) has become official. Sustainable development refers to development that is economically efficient, socially equitable and ecologically sustainable.
